Investment Firms Brace for Regulatory Shake-Up: EBA/ESMA Review of IFD and IFR

The regulatory landscape for European investment firms is under the microscope as the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) initiate a comprehensive review of the Investment Firms Directive (IFD) and Investment Firms Regulation (IFR). While the framework is deemed adequate, stakeholders have voiced concerns, prompting a deeper dive into its intricacies.

Key Areas of Focus

The review will leave no stone unturned, with a focus on:

• Classification of Investment Firms: Are the current thresholds and categories still appropriate? Could changes be made to reflect better investment firms' diversity and risk profiles?

• Prudential Requirements: Are capital requirements (K-factors), consolidation rules, and liquidity requirements adequately tailored to the risks faced by different firms?

• Interaction with CRR/CRD: How does the IFD/IFR interact with the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD), especially in light of the recent banking package?

• Future-Proofing: Is the regime equipped to handle emerging trends, such as the growing role of crypto-assets in the investment landscape?

• Remuneration: Are existing rules on remuneration policies effective in curbing excessive risk-taking and promoting sound risk management?

What This Means for Your Firm

• Get Ready for Change: The review could significantly change the regulatory landscape for investment firms. Prepare for potential adjustments to capital requirements, liquidity rules, consolidation requirements, and remuneration policies.

• Increased Compliance Burden: New or revised rules could mean additional compliance work, requiring firms to adapt their systems, processes, and reporting procedures.

• Business Model Impact: Depending on the nature of the changes, your firm's business model could be directly affected, mainly if you engage in activities that might face stricter requirements or fall into new risk categories.

• Have Your Say: This is your chance to influence the outcome! Participate in the public consultation and data collection exercise to share your insights and concerns with regulators.

Next Steps for Investment Firms

1. Deep Dive: Carefully review the EBA/ESMA discussion paper and understand the potential implications for your specific operations.

2. Speak Up: Provide feedback through the consultation channels and participate in the data collection exercise. Your input matters!

3. Assess the Impact: Analyze how the proposed changes could affect your business model, capital needs, liquidity, and remuneration practices.

4. Plan Ahead: Plan for potential adjustments to your operations, systems, and processes to ensure seamless compliance with new requirements.

The Road Ahead

The regulatory landscape is evolving, and investment firms must proactively navigate these changes. By staying informed, engaging with regulators, and adapting your strategies, you can ensure your firm remains resilient and competitive in the face of new requirements.